23 Trending Average Labor Cost Statistics [2023]: Labor Cost Percentage By Industry And More

Research Summary. For any industry, labor cost is an important factor to consider. However, not every industry is created equal, and the COVID-19 pandemic has also affected labor costs. According to our extensive research:

• The average labor cost is typically 20-35% of gross sales, depending on the industry.

• Public schools have the highest labor cost in the U.S., amounting to $545.8 billion annually.

• The air transportation industry has seen the largest recent increase in labor cost, rising by 106.9% in 2020.

• Private industry workers cost employers an average of $27.44 per hour worked for wages and salaries and $11.47 for benefits in 2022.

For further analysis, we broke down the data in the following ways:
Sector | Industry | Breakdown | Trends

General Labor Cost Statistics

Labor costs can be significant, especially for industries that experience a reduction in productivity. With that in mind, it’s unsurprising that the COVID-19 pandemic has caused massive drops in productivity that result in increased labor costs. Here are some insights our research uncovered:

• The top 3 industries with the highest increase in labor costs experienced a productivity decline of over 38%.

  In 2020, the industries that experienced the largest increases in unit labor costs were air transportation (106.9%), amusement parks and arcades (76.4%), and travel arrangement and reservation services (73.7%), all of which were impacted by social distancing policies and closures.

change in labor costs by industry

Industry	Unit Labor Costs (2020)
Air Transportation	106.9
Amusement Parks & Arcades	76.4
Travel Arrangement & Reservation Services	73.7
Warehousing & Storage	15
Engineering Services	11.8
Periodical Publishers	11.1
Newspaper Publishers	8.2
Couriers & Messengers	7.3
Automotive Repair & Maintenance	6.5
Commercial Banking	5.1

• In 2020, unit labor cost increased in at least 21 industries.

  The most common correlating factor being productivity, as over half of these industries experienced a fall in productivity in tandem with their increased labor cost.

• U.S. public schools, hospitals, and colleges pay out the most in labor costs.

  Public schools are the most expensive, paying out $545.8 billion, while hospitals and colleges pay $347.4 and $218.9, respectively.

Average Labor Cost By Sector

Different sectors of the economy are also impacted by labor costs in unique ways. For example, the nondurable manufacturing and nonfinancial corporate sectors can have vastly different labor costs. Here are some insights our research uncovered:

• As of 2021, the nonfinancial corporate sector has experienced the largest decrease in labor cost, totaling 5%.

  As of the second quarter of 2021, this sector has experienced the lowest labor costs. This is especially true when considering the fact that labor costs the previous year had only decreased by 0.8%.

  And this correlates with productivity, as the nonfinancial corporate sector also experienced a 10% increase in productivity compared to the previous year.

• The business sector has the highest percentage increase in labor costs, at 1.4%.

  While this isn’t a stand-out number, it does correlate with lackluster productivity growth, as productivity from the last year to now only increased from 2% to 2.4%.

• From 2020 to 2021, the durable manufacturing sector has seen the most drastic decline in labor cost, decreasing by 155.71%.

  In 2020, labor costs for this sector were up by 0.07%. However, as of the second quarter in 2021, that number has dropped to -10.9%.

  While this might not seem like a lot on the surface, the difference between these two percentages is massive. The sector went from having increased labor cost in 2020 to decreased labor cost in 2021.

Average Labor Cost By Industry

Across the many industries in the U.S., there are also vast differences in labor cost. In truth, there are several factors to consider when comparing industries, such as whether or not they’re private or public, among other things. Here are the facts:

• Compensation costs for private industry workers increased 33% more than that of government workers.

  There was an increase in compensation costs of 3.1% for private industry workers from June 2020 to June 2021. During this same period, government employees only saw an increase of 2%.

• Metal ore mining has seen one of the steepest percentage increases in labor costs since 1987, reaching a whopping 202% increase.

  This can also be paired with very stagnant productivity, as productivity in the industry has only increased by 4.9% over 30 years.



• The labor cost of computer and electronic products has decreased by 78.4% since 1987.

  That’s the largest and most significant decline out of any industry, which also pairs perfectly with the largest increase in productivity. Within the past 30 years, productivity in this industry has increased by over 1,000%.

Breakdown of Average Labor Costs

While it’s obvious that labor cost has an impact, its extent is divided amongst compensation, wages, and benefits. Overall, the amount of increased labor cost heavily depends on the type of industry. Here’s what we found:

• For civilian and private industries, the cost of wages and salaries has increased by over 3%.

  As of June 2021, labor cost for civilian and private industries rose to 3.2% and 3.5%, respectively. For both industries, that increase is higher than that of compensation or benefits. By contrast, government industries only saw an increase of 1.6% or roughly half the total wages and salaries cost increase.

cost of wages and salaries increase 2020-2021

Industry Type	% Increase From June 2020-2021	% Increase December 2020-2021
Civilian Workers	3.2	4.5
Privat Industry Workers	3.5	5
State & Local Government Workers	1.6	2.7

• At 2.6%, benefits are the heaviest cost of labor increase for state and local government industries.

  And this number is especially poignant when considering the disparity between the cost of wages and salaries. For government industries, benefits have experienced a 38% higher increase than wages and salaries, which have only increased by 1.6%.

cost of benefits increase 2020-2021

Industry Type	% Increase From June 2020-2021	% Increase December 2020-2021
Civilian Workers	2	2
Privat Industry Workers	2	2
State & Local Government Workers	2	2

• As of June 2021, the percentage increase to the cost of compensation was lower in government industries, at 2%.

  By contrast, the percentage increase in the cost of compensation for the civilian and private industries was 2.9% and 3.1%.

cost of compensation increase 2020-2021

Industry Type	% Increase From June 2020-2021	% Increase December 2020-2021
Civilian Workers	2.9	4
Private Industry Workers	3.1	4.4
State & Local Government Workers	2	2.6

• The largest increase in labor cost over the past 12 months was wages and salaries for private industries, which rose by 17%.

  The increase in wages and salaries for private industries in June 2020 was 2.9%, but that number rose to 3.5% as of June 2021.

• The largest decrease in labor cost over the past 12 months was wages and salaries for government industries, which declined by 39%.

  The increase in wages and salaries for government industries in June 2020 was 2.6%, but that number fell to 1.6% as of June 2021.

Average Labor Cost Trends

As seen with the airline transportation industry, the COVID-19 pandemic has had an obvious effect on labor cost trends. While the cost of labor has increased over time for most industries and sectors, here’s are some interesting facts we found:

• The average labor cost increased from 1987 to 2019 was 75%.

  And this number is the average across 26 different industries and three different sectors. Of course, there are also outliers: in ore mining, tobacco, textile, petroleum, chemicals, and wood, the cost of labor increased by more than 100%.

  Conversely, computer and electronic products is the only industry that saw a decrease in the cost of labor at -78.4%.

• The overall mining sector saw one of the largest increases in the cost of labor, at 97.2%.

  However, the nondurable manufacturing sector isn’t far behind, with an average increase of 94.1% since 1987.

• The cost of benefits for government employees has increased by 66.2% since 2005.

  While the increased cost of benefits for civilian and private industry workers was considerably lower, at only 46.3% and 40.6%, respectively.

• Since 2005, the private industry saw the highest increase in the cost of wages and salaries, at an average of 45.8%.

  This is only marginally higher than civilian and government industries, which experienced an increase in the cost of wages and salaries of 44.1% and 36.6%, respectively.

• Labor costs for aircraft manufacturers increased by the least since December 2005, only 24.7%

  This is interesting considering the fact that the air transportation industry has seen the largest recent increase in labor cost, rising by 106.9% in 2020.

Average Labor Cost FAQ

1. What is the average cost of labor?

   The average cost of labor is 20-35% of gross sales. However, the average cost across different sectors and industries can vary significantly. For example, the metal ore mining industry has seen a 202% increase in the cost of labor since 1987, while the cost of labor for computer and electronic products has decreased by 78.4% since 1987.

2. What is the BLS Employment Cost Index?

   The BLS Employment Cost Index (ECI) is a consistent quarterly measurement of the changes in total labor cost. These changes are divided into the cost of compensation, wages and salaries, and benefits across many industries.

3. How is ECI calculated?

   ECI is calculated through the labor cost data collected from a set of sampled jobs within a sampled industry or sector. This data is then compiled and turned into averages and percentages.

4. How much have labor costs increased in the past year?

   U.S. labor costs have increased by 4% in the past year. For context, that’s the largest year-over-year increase in labor cost since 2001.

   In fact, nearly everything related to the job market increased in cost this year. Wages saw a 4.5% year-over-year increase, and inflation was over 2%. Both of these factors have contributed to the increasing cost of labor.

   However, it’s also important to note that the cost of labor has been increasing for some time. Overall, the average cost of labor has increased by a whopping 75% since 1987.

5. How do you calculate average labor cost?

   To calculate average labor cost, you simply need to factor in all of your employment expenses. Consider this formula:

   LPH (Labor Cost per Hour) = (gross pay + all annual costs) ÷ actual hours worked per year

   Let’s break it down further. First, we need to calculate gross pay:

   • Gross pay = gross hourly rate x number of hours worked per pay period

   • 40 hours per week x 52 weeks in a year = 2080 hours

   • 2080 hours x $15 per hour = $31,200 gross pay

   Now that we have gross pay, we need to figure out the actual hours worked. After all, there are very few workers who take no sick or personal days. Therefore, if the worker in question took 20 days off during the year, here’s how we add that into our equation:

   • Hours not worked = 20 days x 8 hours = 160 hours

   • 2080 hours – 160 hours = 1,920 actual hours worked

   Next, we need to consider the extra annual costs. There are many factors to consider here, such as taxes, employee benefits, overtime, and more. However, for the sake of simplicity, let’s lay it out here:

   • $2,500 annual taxes

   • $3,500 health insurance

   • $1,000 benefits

   • $600 overtime

   • Total: $7,600

   And finally, we can use our first equation to calculate the labor cost per hour:

   • LPH (Labor Cost per Hour) = (gross pay + all annual costs) ÷ actual hours worked per year

   • ($31,200 + $7,600) ÷ 1,920 = $20.21 labor cost per hour

6. What percentage of cost should be labor?

   Labor should account for 20-35% of costs. Of course, this can vary greatly depending on the industry.

   For instance, there are industries that experienced exceptionally high labor costs in 2020. The Air Transportation industry had a massive unit labor cost of 106.9%, followed by Amusement Parks & Arcades (76.4%) and Travel Arrangement & Reservation Services (73.7%).

   Those incredible high numbers help to explain massive employee layoffs and closures for these industries during the height of the COVID-19 Pandemic.

7. Is labor the biggest cost?

   Yes, labor is usually the biggest cost. In fact, labor cost accounts for roughly 60% of all company expenses, and that number only continues to rise.

   For instance, the COVID-19 pandemic has caused many workers to feel as though they’re overworked and undervalued. This, in turn, has caused demand for higher wages, better benefits, and more. Due to that, companies will likely have to accept higher labor costs if they want to remain competitive.

Conclusion

For most everyone except for the computer and electronic products industry, the cost of labor has been steadily increasing over the past decades. While this is normal to some extent, the COVID-19 pandemic has certainly exacerbated the problem. Just take the 106.9% increase to the cost of labor for the air transportation industry in 2020.

Increases in the cost of labor aren’t limited to just one aspect of labor either, as there has been a consistent increase in the cost of compensation, wages and salaries, and benefits. That said, benefits are more costly for government jobs (increasing by 66.2%) and wages and salaries for private industry jobs (increasing by 45.8%).

Overall, the cost of labor can be expected to continue its steady increase going forward. Though, industries affected by the COVID-19 pandemic will likely see their cost of labor decline back to a normal level.

References

1. BLS. “Productivity and Costs by Industry Selected Service-Providing Industries – 2020.” Accessed on September 27th, 2021.

2. IBISWorld. “Industries with the Highest Labor Costs in the US in 2021.” Accessed on September 27th, 2021.

3. BLS. “Productivity and Costs, Second Quarter 2021, Revised.” Accessed on September 27th, 2021.

4. BLS. “Employment Cost Index – June 2021.” Accessed on September 27th, 2021.

5. BLS. “Labor cost indexes by industry.” Accessed on September 27th, 2021.

6. BLS. “Employment Cost Index Summary.” Accessed on September 27th, 2021.

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.